Should Retail Investors Have Their Own Earnings Call?

The average public company has less than 60% of their shares held by investors who can trade actively with the balance held by passive indexers.? Importantly, within the 60% of shares able to be actively traded, are two different types of investors - institutional and retail, with retail in some cases representing more than 50% of the actively traded shares.?

The increase in retail investor participation has been fueled by several factors including the democratization of financial markets, the advent of user-friendly trading platforms, and the dissemination of financial knowledge through digital channels. This important segment of the shareholder base is not just a transient phenomenon, but, with indexing, an important generational shift.? Traditionally, institutional investors, with their substantial capital clout, have been the focal point of corporate communication efforts, but is it time for companies to recalibrate their communication strategies and host two earnings calls – one focused on the Institutional Investor audience and the other focused on the Retail audience?

The Retail Revolution: Unpacking the Shift

The era of digitalization and democratization of financial markets has empowered retail investors, enabling them to participate more actively in the stock market. Their rising prominence in the active share count is not a transient wave, but a solid indication of a broader, enduring shift. Different than their institutional counterparts, retail investors come with a somewhat set of expectations and communication and engagement preferences.

1. Interests: Retail investors can have longer-term investment horizons and are interested in understanding the broader strategic vision and corporate social responsibility initiatives of the companies they invest in.
2. Communication Needs: The complexity and technicality of traditional earnings calls may not cater to retail investors who prefer straightforward, easily digestible information.
3. Preferences: They tend to favor interactive, engaging, and transparent communication channels that provide insights into a company’s performance and future prospects.
4. Expectations: The expectation for clear, and engaging communication from the company's leadership is a hallmark of the retail investor cohort.

Rethinking Quarterly Calls: A Retail-centric Approach

1. Enhanced Engagement: Hosting a retail-focused earnings call can create a platform for meaningful engagement with retail investors, addressing their unique concerns and questions.
2. Democratization of Information: Such an initiative can bridge the information gap, ensuring that retail investors are not left in the informational shadows and support the company in proxy situations.
3. Building Trust: By opening channels of communication and demonstrating transparency, companies can build trust and loyalty among retail investors, which is vital for long-term success and stability of the shareholder base.
4. Regulatory Foresight: With regulators advocating for greater transparency and inclusivity, hosting a retail-focused earnings call could position companies as forward-thinking in the eyes of regulators and the broader market.
5. Strategic Insight: Engaging with retail investors can provide companies with diverse perspectives, which could be invaluable in shaping future strategies, particularly in directly consumer facing industries.

Challenges and Considerations:

Despite the potential benefits, there are important logistical, regulatory and bandwidth considerations that public companies must navigate. The feasibility of hosting separate calls, managing a broader array of questions, and ensuring consistent communication across different investor groups are among the challenges that need to be addressed, but a challenge worth considering for a company with a substantial retail shareholder base as part of their active share count.

The proposition of hosting a retail investor-focused earnings call is rooted in the broader narrative of the evolving market landscape, corporate communication, and investor engagement. As the retail investor base continues to grow, public companies will increasing find value in adapting their investor communication strategies to engage this audience. It may not be a separate earnings call for retail investors, but the consideration of one highlights the evolving dynamics of corporate shareholder engagement, moving towards a more inclusive and diversified investor relations paradigm.